Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with an interesting retrospective look at the impact of the Financial Planning Association's successful lawsuit against the SEC 10 years ago, which set in motion much of the past decade's fiduciary rulemaking debate, the rapid rise of the hybrid B/D-RIA movement, and spurred the growth of the independent RIA channel... though, ironically, not the organization's own membership, which remains down nearly 15% from before the lawsuit was first filed.
From there, we have a series of practice management articles this week, including: a look at the challenge in transitioning from a practice into a business (which becomes a virtual necessity as an advisory firm approaches $2M of revenue); the importance of developing talent internally, which in turn requires having a clear multi-step progression of how an advisor can grow over time from a paraplanner to an advisor and even a partner; tips on how to refine your own hiring process (and why it's so crucial to do so); and a warning from Mark Tibergien that while advisory firms are still growing, they're increasingly buoyed by just market returns as organic growth rates are slowing, raising the question of whether it's finally time for advisory firms to begin building more formal marketing processes.
We also have several articles specifically on marketing and business development, from a discussion of the path that prospects go through in considering a financial advisor (and why it's necessary to customize your own sales process depending on what stage they're in), to strategies for improving your new client onboarding process to make people want to refer from the very start of working with you, why an "elevator pitch" is still a necessity in today's world, and why good branding in the modern era of information overload is less about finding a cute or clever way to describe yourself and increasingly about just being really clear about what you do and who you serve (so the prospects who would actually be interested can quickly and easily find you!).
We wrap up with three interesting articles, all around the theme of milestones and personal growth: the first is an excerpt from Daniel Pink's new book "When", looking at how having "temporal landmarks" (from a deadline to a birthday that turns a new decade) can spur us to get things done or take on new challenges; the second is a fun series of "life tips" from someone turning 45 and looking back on all she wish she knew in her earlier years; and the last is an interesting exploration of why it may not always be a good idea to set "SMART" goals (that are specific and concrete), and how setting goals can actually distract us from both enjoying the journey, and missing the new opportunities that may come along the way!
Enjoy the "light" reading!
Weekend reading for February 3rd – 4th:
The FPA Victory Over The SEC, 10 Years Later (Tracey Longo, Financial Advisor) - In 1999, the SEC issued a rule that would exempt broker-dealers from being required to register as investment advisers for fee-based accounts. Dubbed the "Merrill Lynch" rule at the time (as it was widely viewed as an exemption primarily for wirehouses), the Financial Planning Association challenged the exemption and sued the SEC, claiming that it was exceeding its authority by carving out an exemption that was inconsistent with what Congress actually wrote in the Investment Advisers Act of 1940. And to the surprise of many, in what seemed like an impossible David vs Goliath battle, the FPA won... forcing broker-dealers to form RIA divisions for such activity instead, and spawning the entire hybrid B/D-RIA movement. Now, 10 years later, the industry is still fighting about a (uniform) fiduciary standard for RIAs and broker-dealers, after the FPA lawsuit forced a re-assertion of the bright-line distinction between brokers and RIAs. In fact, arguably it's the SEC's failure to follow through with a uniform fiduciary standard after the FPA's successful lawsuit that created the regulatory vacuum that led the Department of Labor to step in with its own fiduciary rule, and in turn it seems to be the DoL's fiduciary rule that has brought the SEC back to the table to consider a proposed fiduciary rule anticipated sometime later this year... which means the wheels that the FPA's lawsuit set in motion over a decade ago may just now finally be playing out their logical fiduciary conclusion. Ironically, though, while the FPA's successful lawsuit was a phenomenal victory for the advancement of financial planning and maintaining a fiduciary duty for advice, and spurred the growth the growth of the RIA channel (and especially the hybrid movement), the FPA itself has been unable to capitalize on its success with its own membership growth, which continues to sit nearly 15% below its pre-lawsuit highs from a decade ago.
Getting Over Yourself (Angie Herbers, Investment Advisor) - There are two critical junctures that define the long-term success (or failure) of an advisory firm. The first is at the moment the business is created, when the entire focus is about figuring out how to draw in clients – which means developing a solid service model, creating good marketing materials to sell that service model, and figuring out how to get in front of good prospective clients. Everything else about the "business plan" is really just a distraction during this critical revenue growth phase; in fact, Herbers suggests that fully (overly?) developed business plans at launch can hinder the success of a firm, by making new advisors too fixated on "sticking with the plan" and thereby failing to adapt their businesses to what they find is actually working with their initial client base. Once the initial revenue hurdle is cleared, the process of growth is relatively straightforward... just continue doing what's working in getting and serving clients, and start hiring a team (administrative staff, paraplanners, etc.), to support you. Until somewhere around $2M of revenues, which is the point where the business can no longer just be run in a seat-of-the-pants figure-it-out-as-we-go approach anymore (and it shifts from being a practice into a "real" business)... as at that size, and the number of staff it entails, a business without a plan becomes a business that's out of control. Which in turn leads to hitting a growth plateau as the firm struggles to grow materially beyond $2M of revenue, as client retention slips, and/or profit margins slip, or the find suddenly finds itself less competitive for new clients. The key to clearing the hurdle – the advisor/business owner must shift from being an advisor and a business owner, and make a real and concrete decision that they can likely only do one or the other well... which means fully committing in one direction or the other, and hiring someone senior (a lead advisor, or a COO) to help drive what must be left behind. Although arguably, the first and biggest step is simply realizing that the business may be growing beyond the point of your individual ability to manage it all! (Thus why Herbers suggests that many successful advisory firm business owners need to "get over themselves"!)
Developing Talent (Mark Tibergien, Investment Advisor) - As advisory firms continue to grow larger and larger, they continue to hire more and more employee advisors... to the point that in recent years, the number of employee advisors now exceeds the number of owners in RIA firms. Yet the challenge is that so much hiring growth is accentuating a shortage for employee advisor talent, as financial planning programs still aren't graduating enough young students to fill the void. At the same time, though, many advisory firms hinder their own progress towards talent development by adopting an "eat what you kill" mentality, where young/new advisors must bring (or find) their own revenue, failing to recognize that today's new advisors follow a path of serving (existing) clients first, and developing new clients second. In fact, Tibergien advocates that developing someone into a business-developing partner who helps to grow the firm is actually an 8-12 year path, that starts with being an "analyst" (e.g., a paraplanner doing basic financial planning work), then a senior analyst/paraplanner, then becoming a "Service Advisor" (once the technical competencies of financial planning are mastered, and when it's time to start working more directly with existing clients), which is followed by moving up to a Senior Advisor (independently responsible for managing client relationships, and perhaps for some business development as well), and ultimately a true Partner who can both drive new business and help to manage the business itself. The key point: developing long-term talent takes time, and the path to progress is different for this generation of financial advisors than it was in the past... but by clearly articulating the path to success, and the skills it will take, young talented recruits will know what they have to do to take the next step up.
There Is A Method To The Hiring Madness (Caleb Brown, Investment Advisor) - One of the biggest challenges that advisory firms face in the hiring process is simply that they don't have a process for hiring in the first place. Which is increasingly a problem given the shortage of available financial advisor talent; firms that don't run their hiring process will risk losing out on promising candidates, who may not take the job even if it's offered to them (because they've already lost confidence in the business as a good place to work based on the problematic hiring process!). Key issues that Brown sees cropping in in his own New Planner Recruiting firm include: the failure to create a clear job description, which means the role itself lacks clarity, and therefore the firm struggles to figure out who is a "good" candidate (which draws out the process, and causes even the good candidates to get frustrated and give up and go elsewhere for a job); having unrealistic expectations about the actual quality of the opportunity they are providing (as too many firms seek out A+ candidates thinking they're giving the "best" opportunities, when it truth it's a B+ job and probably won't attract a more-than-B+ candidate); not planning far enough in advance to begin the hiring process (which ends up causing the firm owner to feel pressured and crunched when it's time to hire, often leading to either hire too quickly, or fail to interview candidates in a timely manner because they're overwhelmed in their own business); and being too quick to pivot (as entrepreneurial advisors are often accustomed to trying things and quickly moving on if they don't work out, but when it comes to hiring that risks skipping over quality candidates by failing to take the time to get to know them and recognize the value they may bring).
Contentment Or Complacency (Mark Tibergien, Investment Advisor) - One industry benchmarking study after another is showing falling growth rates in advisory firms; the latest 2017 Investment News Compensation and Staffing Study shows the typical advisory firm revenue growth rate was just 5% in 2016, down from 8% in 2015 and 16% in 2013. The slowdown appears to be a result of multiple factors, from the ongoing aging of most advisors' clients (who increasingly are retiring and entering the distribution phase of outflows, rather than saving and adding dollars as they did in the past, and in some cases literally dying off), to the lack of capacity for firms that are struggling with hiring. But Tibergien suggests the most significant cause of slowing growth is actually about poor positioning, bad branding, and ineffective marketing by the typical advisory firm... as evidenced by the fact that so many advisors still (sometimes proudly) state that they do no marketing because clients just find their way to the advisor anyway. Yet the data suggests that such referrals are not the growth channel they once were, and arguably even a well-executed referral strategy should still entail more clearly differentiating the firm with clients so they have something clearer and more compelling to refer (i.e., by making the firm more referrable in the first place). Which in part is why some advisory firms are relying more on third-party referral arrangements – such as the popular referral programs from many RIA custodians – but even those programs can prove very "expensive" in the long-term as revenue-sharing referral payments add up over time. So what's the alternative? Tibergien suggests that it's time for advisory firms to get real about developing real marketing programs, by trying to formally define and establish a brand in their marketplace, with a unique positioning statement and differentiated message... and beware of being complacent about an ever-declining growth rate, which for many firms at this point is only being sustained by the ongoing bull market (which will eventually and inevitably turn).
The Path Prospects Take To Get Advice (Stewart Bell, Audere Consulting) - Meeting with prospective clients has its ups and downs; one prospect desperately wants to hire you, while the next seems barely interested despite clearly being in a financial mess. The reason is that the path to seeking financial advice is a long one, and not everyone is at the same point on their own journey when they happen to meet you in your office for the first time. Some really are in the final phase, already convinced that they need advice (and are willing to pay for it), such that they're already sold on the what, how, and why of financial planning, and are just trying to decide on the "who" (and whether it will be you). Others, though, aren't quite that far along in the process; instead, they're still "researching options" and might say they're "just looking", because the reality is that they know they have a problem but aren't actually certain what the solution should be (i.e., they're not yet convinced they even need financial planning advice in particular, just that they should probably do "something"). Which is important, because the first client type needs to be convinced "why you", but the latter still needs to be convinced "why now" and how you even provide value in the first place (that will hopefully be relevant for their challenge). And some prospects are even earlier in the process; they may know they have a problem, but haven't actually even decided if they're really ready for help yet (just as we wait to visit the dentist even though the tooth is hurting, or wait to get the car serviced even though the warning light is on). Knowing prospects are in this stage matters, because trying to sell them on the "what" or the "who" probably won't matter yet; instead, you still need to help them explore the problem and understand why they need help to do something about it in the first place. And then, of course, there are the prospects who you might help and do business with, but they don't even realize there are any problems looming for them (which means they're certainly not interested in solutions, and at best have to be treated as very long-term prospects). The key point: each different type of prospect, at a different stage in the path to advice, will be receptive to different types of messages, which means the first step to being effective is just learning to diagnose which stage they're at in the first place (and then respond accordingly).
Does Your New Client Onboarding Produce Referrals? (Maribeth Kuzmeski, Red Zone Marketing) - Most advisory firms are very high-touch and responsive with clients... in fact, the same is true in most industries during the sales process when becoming a new client or customer. Yet the problem is that if the business isn't equally communicative and supportive in the onboarding process, the abrupt shift and slowdown can immediately leave a negative perception of the firm, and increases the risk that a new client will decide they regret the decision and want to change their mind. Accordingly, Kuzmeski provides a series of recommendations about how to specifically make the onboarding process more "high-touch" to feel better from the client's perspective, including: 1) send a "team introduction letter", that introduces all the members of the team that the client will interact with, including their pictures... which clients will often save so they can remember who's who when they come into the office (and in turn deepens their connection with the firm); 2) have a staff member conduct an Individual Client Orientation (either via phone call, or even an in-person meeting), to help explain to new clients how to access their information online, how to read the statements/reports you'll be sending them, set expectations around communication, discuss future meetings, etc.; 3) Send a gift (it could be a letter or a small gift like a book, accompanied by a book summary) to express your gratitude for them becoming a client (and begin to invoke the reciprocity principle!); and 4) conduct a New Client Survey shortly after they come on board, that asks them how you're doing so far (which can be administered easily with third-party services like SurveyMonkey)... and asks them in the final question "Would you be willing to refer us to others?" to begin to prime the referral pump!
Branding Yourself: How To Create A Great Elevator Pitch (Kerry Johnson, Advisor Perspectives) - The basic concept of the "Elevator Pitch" is very simple and straightforward: an explanation of who you are and what you do, that you can deliver in the time it takes to ride an elevator to the top of an average high-rise building (about 30 seconds or less). Because the reality is that just saying you're a "Financial Advisor" doesn't distinguish yourself in the mind of a prospect (should you have an opportunity to make an impression on one that might be interested!). And going into a longer in-depth explanation is often too-much-too-soon for people who might have just been making chit-chat (or will just outright bore them or lose them even if they were interested!). Johnson provides a simple 5-step process for creating your own elevator pitch: 1) Label yourself somehow in three sentences or less (e.g., "I am a financial advisor specializing in helping my clients make their money last as long as they do during retirement."); 2) articulate three clear benefits of what you do (e.g., I do three things for my clients: a. Get above-market returns with below-market risk; b. Make sure they never run out of money during retirement; and c. Promise to keep in contact every three months and keep them informed); 3) tell a brief story that helps to reinforce those three benefits (e.g., "one of my recent clients came to me worried about running out of money during retirement, so I..."); 4) ask a question that probes for needs (e.g., "Tell me, do you know what you are paying in fees?" or "Tell me, do you know for a fact that you will hit your retirement goals?"); and 5) ask for a simple close for a meeting (e.g., to the extent you've uncovered a need, you can ask "If I could help you decrease your fees and hit your retirement goals, would that be a benefit?"). Of course, to each their own about what particular benefits they want to highlight (as Johnson's examples may be more "salesy" and investment-oriented than many financial planners prefer), but the fundamental point remains the same: in a world where we meet a lot of people, you don't always have a lot of time and opportunity to engage them, so it's worth refining exactly how you describe yourself to be compelling enough to engage them for a follow-up contact opportunity.
The Massive Personal Branding Mistake I Discovered From Studying 16,000 LinkedIn Profiles (John Nemo, Inc) - It's increasingly popular to use "clever" words to describe ourselves in marketing; for instance, Nemo found that on LinkedIn, he was connected to 115 "Masters", 35 "Gurus", 15 "Ninjas", and even 3 "Rock Stars" (at least, based on the titles they used to describe themselves!). Yet as Nemo points out, not only are these titles not believable in any real sense, but self-professed expertise can even lose credibility in the eyes of some, and more importantly, they're just outright undifferentiated to the point that they won't likely draw in even the prospects who should be interested. Thus, Nemo suggests that a better approach for marketing – from your business website, to your LinkedIn Profile (the context of his article) – is to simply be clear about what you do and who you serve, using language likely to actually resonate with the people you want to reach. For instance, Nemo doesn't call himself a "LinkedIn Ninja" or a "Digital Marketing Guru"; instead, his LinkedIn Profile says "Online Course Creator ("LinkedIn Riches" + "Webinars That Work") Bestselling Author | LinkedIn Trainer | Webinar Trainer", which clearly and explicitly defines what he does, such that if you actually wanted someone to help train you on LinkedIn or Webinars, or to create online courses, you would immediately know that that's exactly what he can do for you! An important aspect of this is clearly defining not just what you do, but who you do it for, because that makes it more compelling for those who fit the description and are actually reading it; thus, a business coach who works with C-suite executives small business owners should simply clearly say "Business Coach | Business Coaching for C-Suite Executives + Small Business Owners". In other words, good marketing in the age of information overload isn't about being clever or cute (which makes people need to take the time they don't have to figure out what you really mean), and instead simply be clear so someone can quickly discern what you do and whether you're a good fit for them (because that's what actually spurs them to action!).
The Bizarre Motivating Power Of Aging Into A New Decade (Daniel Pink, The Atlantic) - In his recent book "When", Daniel Pink highlights an interesting commonality to people who decide to run their first marathon: a disproportionately high number of them are "nine-enders", or people who are in the last year of a current life decade (e.g., 29, 39, 49, or 59). In fact, 29-year-olds are twice as likely to run a marathon as 28- or 30-year-olds, and 49-year-olds are 3 times more likely to run their first marathon than a 50-year-old. The effect appears to be a very human phenomenon: we often use "temporal landmarks" to either wipe away previous bad behavior, or make a fresh start (whether it's training for your first marathon before you turn the big 3-0 or 4-0 or 5-0, or joining the gym after your birthday with a renewed focus on getting healthy). Unfortunately, though, these temporal landmarks aren't always positive; research has also shown that nine-enders have a higher suicide rate than those whose ages end in any other digit, and on the extramarital affair website Ashley Madison the frequency of nine-enders were 18% more than what chance alone would predict. Of course, this perception of reaching the end of a journey (before the next new stage), or a major milestone, isn't unique to just these behaviors; for instance, a disproportionate number of all points scored in NFL games are in the final minute of the first or second half, and most of us are accustomed to pushing harder in the final stretch of a deadline (a phenomenon known as the goal-gradient hypothesis). The underlying point, though, is simply to recognize the power of temporal landmarks, and that our focus and motivation can often change, in meaningful ways, simply due to our proximity to a perceived temporal transition (from a common deadline to a nine-ender birthday!).
After 45 Birthdays, Here Are '12 Rules For Life' (Megan McArdle, Bloomberg) - In celebration of her recent 45th birthday, McArdle shares some interesting wisdom about how our lives (and even our goals) transition as we reach a mature stage of life... which in some cases would be helpful advice to have heard when we're younger, and in other cases is simply a good reminder for living a great(er) life from here. Some helpful ideas include: Be kinder to people (because the truth is that being mean is easy, while being kind of hard and takes work); politics are easy to be a common point of discussion because we all share a government, but there are more important things than life than talking about politics; always order an extra dish at a restaurant that's unfamiliar to try something new (i.e., spend a few dollars from time to time to try something new!); go to the party even when you don't want to (because the 1-in-10 times you have an amazing experience or meet an interesting person makes it all worthwhile and will be what you remember in the end); save 25% of your income (not just 10%, because it's too easy to underestimate the real value of having financial security); don't just pay people compliments, but give them "living eulogies" that tell them exactly how great they are (you'll never regret it); stop waiting to do something you've "always" wanted to do; stop trying to win so many arguments (especially with your spouse), and learn to simply compromise and work together; and always remember there's something to be grateful for amidst the roughly 2 billion seconds any of us will be alive on the planet.
Are Goals Limiting Your Growth? (Julie Littlechild, Absolute Engagement) - It's common advice that you need to set goals (and even write them all down!) in order to grow and achieve more. But Littlechild (and her guest writer Josh Patrick) note that ultimately, goals can be very limited, causing us to focus more on the end result than the journey, potentially even causing us to become overly fixated on going a particular direction (and failing to shift when we should). For instance, in his early years, Patrick ran a business that serviced vending machines, which averaged $45/servicing stop, and they came up with a strategy to change the selection in the machines to improve it to $55... except as it turned out, the end result was an increase to $140/servicing stop, which means just overly-focusing on the goal may have caused him to miss the greater opportunity. Notably, the point is not to say that we shouldn't want to grow and develop and have positive outcomes, but that in a future that is so unknowable, often it's better to focus more on whether you're taking the right steps in the journey, than where the particular destination must be with the classic "SMART" (Specific, Measurable, Achievable, Relevant, and Time-Bound) goal approach. Thus, Patrick suggests instead a process called "Goal Mapping" - which starts with trying to figure out Why you want to pursue the goal, then try to figure out the What (in the context of the Why), then figure out the Who (i.e., who will you need to help you along the way, because no one is highly successful entirely on their own), and then finally boil it down to the How. As a case-in-point example, Patrick details how he applied this to his own business (in the form of a mind map): his Why was to live an interesting life, have economic sustainability for his family, and have personal and financial freedom; his What was getting 3 coaching clients, a waiting list of 5 more, take on 6 keynote speaking engagements, and aim for $400,000 in revenue (noting that these were directional goals, not hard-and-fast goals); his Who was his assistant, along with his clients, and the vendors he works with; and only then did he apply the How (creating a new website, building an application process for potential clients, etc.).
I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!
In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors as well.
Michael, this is AWESOME. I took notes, thought of ideas, made plans, read some articles twice. Thank you so much for doing this. I look forward to this reading every weekend!